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Commercial insurance
Climate risk insurance is the set of covers a business uses to transfer losses from climate-related events and from the legal and financial consequences of climate change. It matters because no single policy is called climate insurance, and the gaps between property, liability and management covers are where losses go uninsured.
Part of: Commercial insurance
In short
For a UK business, climate risk splits into physical risk (flood, storm, subsidence, heat) and transition and liability risk (disclosure, regulation and claims about climate decisions). Physical risk is mainly handled through commercial property and business interruption cover, sometimes topped up with parametric insurance. Transition and liability risk falls to directors' and officers' and professional indemnity cover. Common limitations include flood exclusions or sub-limits in high-risk areas, unoccupancy conditions, exclusions for gradual causes and underinsurance. Flood Re helps eligible households, not businesses, so commercial premises rely entirely on the private market.
Climate risk is usually split into two broad types:
The scale of the physical risk is growing. The Environment Agency's national flood risk assessment, published in December 2024, found 6.3 million properties in England in areas at risk of flooding from rivers, the sea or surface water, and said that could rise to around 8 million, roughly one in four, by 2050. Surface water was the largest source, at about 4.6 million properties.
For an overview of the wider topic, see climate change and insurance.
Most physical climate risk is insured through commercial property and business interruption policies. Storm and flood are commonly listed perils, and subsidence is often included for buildings. Business interruption usually pays loss of gross profit or increased costs only where the trading loss follows damage by an insured peril. See business interruption insurance.
Flood is the peril most likely to be restricted. In higher-risk locations, insurers may exclude flood, impose a large flood excess or apply a flood sub-limit. Our guide to flood risk and commercial property insurance covers this in detail. In England, the government's long-term flood risk service shows risk for an area from rivers and the sea, surface water, reservoirs and, where data exists, groundwater; it does not estimate the chance of an individual property flooding.
Flood Re is a reinsurance scheme that helps keep flood cover affordable for households. Its eligibility criteria require private residential use, a domestic council tax band and construction before 1 January 2009. It lists bed and breakfasts paying business rates, company-owned houses and flats, blocks of more than three flats and multi-use commercial properties among those not expected to qualify. Flood Re says its focus has always been residential properties, and it is due to cease to operate in 2039.
Prolonged dry weather can shrink clay soils and cause subsidence; see subsidence and commercial property insurance. Heat is less often a named peril. Losses from overheating machinery or spoiled stock usually depend on machinery breakdown or deterioration of stock extensions rather than the core property cover.
Parametric insurance pays a pre-agreed sum when a measured index crosses a threshold, such as rainfall, wind speed or temperature, rather than indemnifying a proven loss. It can pay quickly and fill gaps such as non-damage disruption. The main limitation is basis risk: the payout may be more or less than your actual loss.
Larger UK companies and LLPs must report on climate risk. Under the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022, broadly aligned with the TCFD framework, in-scope companies must include climate-related financial disclosures in the strategic report for financial years starting on or after 6 April 2022. Government guidance says scope includes companies with more than 500 employees that are traded, banking or insurance companies, or AIM companies, and other companies with more than 500 employees and turnover above £500 million. Equivalent rules apply to large LLPs. Disclosures cover governance, risk management, principal risks and opportunities, scenario analysis, targets and KPIs.
Directors also owe a duty under section 172 of the Companies Act 2006 to have regard to the impact of the company's operations on the community and the environment. For FCA-authorised firms, the anti-greenwashing rule, in force since 31 May 2024, requires sustainability claims to be fair, clear and not misleading.
These duties create insurable exposures:
Construction sites are exposed to storm, flood and heat during the works. Contractors' all risks cover usually responds to physical damage to the works from insured weather events, but commonly excludes wear and tear and losses from defective design, and may impose higher excesses for storm and flood. Delay costs are usually not covered unless delay in start-up cover is bought. Designers of drainage, flood defences or heat-resilient buildings rely on PI if their design proves inadequate for the conditions it should have anticipated.
This summary is general and always subject to the policy terms.
| Cover | Climate risks it usually addresses | Common limitations |
|---|---|---|
| Commercial property | Flood, storm, subsidence damage to buildings and contents | Flood exclusions or sub-limits in high-risk zones; large flood or subsidence excesses; unoccupancy conditions; gradual deterioration excluded |
| Business interruption | Lost profit after insured damage | Short indemnity periods; no cover without physical damage unless extended; follows the property exclusions |
| Parametric | Rainfall, wind, temperature or other index triggers | Basis risk; payout capped at the agreed sum; trigger data must be reliable |
| Contractors' all risks | Weather damage to the works | Defective design and wear excluded; delay needs separate cover |
| Directors' and officers' | Disclosure and governance claims | Pollution, fines and conduct exclusions |
| Professional indemnity | Negligent climate-related advice or design | Fitness for purpose and contractual liability commonly excluded |
There is no single climate policy. Physical risks such as flood, storm and subsidence are covered through commercial property and business interruption insurance, sometimes alongside parametric cover. Transition and liability risks, such as claims over climate disclosures or advice, fall under directors' and officers' and professional indemnity insurance. Construction risks sit under contractors' all risks.
No. Flood Re is for households. Its eligibility criteria require private residential use, a domestic council tax band and construction before 1 January 2009. Bed and breakfasts paying business rates, company-owned properties and multi-use commercial buildings are not expected to qualify, so business premises rely on commercial insurers for flood cover.
Common limitations include flood exclusions, sub-limits or large excesses in high-risk areas, conditions on unoccupied buildings, exclusions for gradual deterioration and wear, short business interruption indemnity periods and underinsurance. Parametric cover carries basis risk, and D&O and PI policies have their own exclusions. Check each policy's terms.
Parametric insurance pays a pre-agreed amount when a measured index, such as rainfall, wind speed or temperature, passes a set threshold. It does not require proof of the actual loss, so it can pay quickly. The trade-off is basis risk: the payout may not match what the business actually lost.
Under the 2022 regulations, scope includes companies with more than 500 employees that are traded, banking, insurance or AIM companies, and other companies with more than 500 employees and turnover above £500 million, for financial years starting on or after 6 April 2022. Similar rules apply to large LLPs.
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